Article
How To Ensure Compliance With The Medicare Secondary Payer Statute
by Robert T. Lewis, Esq.
Printer-friendly version (PDF)
I. Medicare
When settling a workers’ compensation claim and closing future medical benefits, a practitioner must ensure that Medicare has been properly considered. By way of background, Medicare is a Health Insurance Program for people 65 years of age and older, some disabled people under 65 years of age, and people with End-Stage Renal Disease (permanent kidney failure treated with dialysis or a transplant).[1] Medicare covers nearly 40 million Americans and a significant number of workers’ compensation claimant’s.
Medicare has two parts:
1. Part A (Hospital Insurance) - covers inpatient hospital care, critical access hospitals (small facilities that give limited outpatient and inpatient services to people in rural areas), skilled nursing facilities, hospice care, and some home health care.
2. Part B (Medical Insurance) - is optional coverage for doctors’ services, outpatient hospital care, and some other medical services that Part A does not cover, such as the services of physical and occupational therapists, and some home health care. Unlike Part A, there is a cost associated with Part B coverage. [2]
Medicare is administered by the Center for Medicare and Medicaid Services (CMS). There are ten (10) CMS Regional Offices throughout the United States. They include: Boston, New York, Philadelphia, Atlanta, Chicago, Dallas, Kansas City, Denver, San Francisco, and Seattle.[3] Federal legislation and CMS directives issued by the Deputy Director have made it clear that workers’ compensation settlements may not shift responsibility for future injury related treatment to Medicare.
II. Medicare Secondary Payer Statute (MSP) and CMS Policy
The Medicare Secondary Payer Statute (MSP) provides that CMS may pursue damages against any entity that attempts to shift the burden of medical costs to Medicare. The purpose of the MSP is to ensure Medicare is secondarily responsible for payment of medical expenses for Medicare beneficiaries who were also covered by another type of insurance. The provisions of the MSP may be found at 42 U.S.C. §1395y (b). The MSP provides that Medicare does not pay for any services for which payment has been made or can reasonably be expected to be made promptly "under a workmen’s compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance." 42 U.S.C. §1395y (b)(2)(A)(i)(ii). Therefore, the workers’ compensation provider is considered the "primary plan" and Medicare is considered the "secondary plan" for the payment of injury related medical expenses.
Under the MSP, CMS has the right to seek reimbursement of medical expenses paid by Medicare, which the workers’ compensation carrier should have made. 42 U.S.C. §1395y (b)(2)(B)(i)(ii)(iii). Additionally, the MSP provides for a private cause of action for double damages against the workers’ compensation carrier for failure to provide primary payment or appropriate reimbursement. 42 U.S.C. §1395y (b)(3)(A).
This has become an increasingly important issue as CMS has stepped up their identification and enforcement procedures under the Statute. CMS is undertaking a comprehensive effort to collect money owed to Medicare for past overpayments and to prevent shifting of future medical expenses from the primary payer to Medicare. This policy is evident in the Memos published by CMS on July 23, 2001, April 22, 2003, and May 23, 2003. It is clear that CMS has made a policy decision to protect Medicare’s rights under the MSP law and to vigorously pursue parties to a workers’ compensation settlement who do not make adequate and reasonable provisions for Medicare’s interest in their settlements.[4]
III. What Cases are Impacted?
Consideration should be given to Medicare’s interest whenever future medical benefits are being closed and either of the following applies.[5]
A) The Petitioner is Medicare Eligible - Regardless of Amount.[6]
A Petitioner is Medicare eligible if he or she is:
1) 65 years or older; or
2) On Social Security Disability for 24 months or longer; or
3) Suffering from End Stage Renal Disorder.
B) The Petitioner has a "reasonable expectation" of becoming a Medicare beneficiary within 30 months of the date of settlement and the anticipated amount of the settlement, including indemnity, is expected to be greater than $250,000.00.
An individual would have a "reasonable expectation" of becoming a Medicare beneficiary if any of the following factors apply:
1) The individual has applied for Social Security Disability Benefits; or
2) The individual has been denied Social Security Disability Benefits but anticipates appealing that decision; or
3) The individual is in the process of appealing and/or re-filing for Social Security Disability Benefits; or
4) The individual is 62 years and 6 months old (i.e., may be eligible for Medicare based upon his/her age within 30 months); or
5) The individual has an End Stage Renal Disease (ESRD) condition but does not yet qualify for Medicare based upon ESRD.[7]
The decision whether or not to obtain CMS approval before resolving any workers’ compensation claim should be made on a case-by-case basis and after consultation with an attorney familiar with the MSP and the CMS approval process. Failure to properly consider Medicare’s interest or proceeding to resolve a claim without approval from CMS, subjects everyone involved in the claim to future exposure.
IV. What Can Be Done To Avoid Future Exposure?
If the proposed settlement falls within any of the above criteria, you must consider both future injury related Medicare payments and past injury related Medicare payments.
A. Future Injury Related Medicare Payments
It is this author’s opinion that the only way to ensure compliance and avoid a claim under the MSP is to obtain approval from CMS prior to settlement of any claim that falls within any of the above criteria. In many cases approval from CMS will require the establishment of a Medicare Set-Aside (MSA) arrangement.
MSA arrangements are designed to "set-aside" a portion of the settlement for payment of future medical expenses. The expenses must be related to the workers’ compensation injury and must be of the type typically covered by Medicare. An approved MSA is the preferred method to close future medical benefits for the carrier and still preserve petitioner’s rights under Medicare for future medical treatment. The MSA may be professionally or self-administered and may be funded with either a lump sum or an annuity. These are decisions that must be made on a case-by- case basis. Once the fund is depleted, the beneficiary becomes eligible for Medicare to pay ongoing future medical expenses. CMS has stated that "once CMS agrees to a Medicare set-aside amount, the individual can be certain that Medicare’s interests have been appropriately considered."[ 8]
In order for CMS to approve the arrangement and the amount, CMS must be provided with all relevant information about the claim and anticipated future medical expenses. The following information is considered by CMS to ensure the adequacy of the fund and to ensure that there has not been any attempt to shift liability to Medicare:
1) Date of entitlement to Medicare.
2) Basis for Medicare entitlement.
3) Type and severity of injury or illness. Is full or partial recovery expected? What is the projected time frame if partial or full recovery is anticipated? As a result of the accident is the individual an amputee, paraplegic or quadriplegic? Is the beneficiary’s condition stable or is there a possibility of medical deterioration?
4) Age of beneficiary.
5) Workers’ compensation classification of beneficiary.
6) Prior medical expenses paid by workers’ compensation carrier due to the injury or illness in the 1 or 2 year period after the condition has stabilized - If Medicare has paid any amounts, they must be recovered.
7) Amount of lump sum or amount of structured settlement.
8) Is the commutation for the beneficiary’s lifetime or for a specific time period?
9) Is the beneficiary living at home, in a nursing home, or receiving assisted living care? If the beneficiary is living in a nursing home, or receiving assisted living care, it should be determined who is expected to pay for such care.
10) Are the expected expenses for Medicare covered items and services appropriate in light of the beneficiary’s condition? [9]
It should be noted that there is no "form" agreement or "formula" to be utilized in obtaining CMS approval. In many cases experts are utilized to perform a thorough medical review, analysis and cost projection. The process involves numerous factors including advocacy and negotiation on behalf of the attorney seeking approval.
Some have questioned whether a "waiver" or "release" will suffice to satisfy the MSP. However, CMS has addressed this issue and declared this would not be sufficient:
Q: "Is there a means by which an injured individual can permanently waive his or her right to certain specific services related to a WC case, and thereby reduce the amount of a Medicare set-aside arrangement?
A: No, the [Regional Office] cannot approve settlements that promise not to bill Medicare for certain services in lieu of including those services in a Medicare set-aside arrangement. This is true even if the claimant/beneficiary offers to execute an affidavit or other legal document promising that Medicare will not be billed for certain services if those services are not included in the Medicare set-aside arrangement."[ 10]
This situation is best illustrated by way of an example. In one such case, the parties had overzealously added release language on Medicare’s behalf. No one representing Medicare was present at the hearing and the settlement Judge took no evidence as to the reasonableness of Medicare’s interest. Almost 18 months following the settlement, the workers’ compensation beneficiary accessed the Medicare system for major medical assistance. After many months of investigation, the settlement documents finally surfaced in the Office of General Counsel for the CMS Regional Office having jurisdiction over the case. The Office of General Counsel sought double recovery for all Medicare dollars spent since the day of the settlement. The case was eventually settled, but not without the payment to Medicare of some large sums of money.[11]
B. Past Injury Related Medicare Payments
Payments made by Medicare prior to settlement must also be considered when resolving a claim impacted by the MSP. These payments are commonly referred to as "conditional payments." Medicare has a statutory right of recovery for these payments pursuant to 42 U.S.C. 1395y(b)(2) and 42 C.F.R. 411.24. Under these provisions, Medicare is precluded from paying for a Claimant’s medical expenses when payment should be made by another provider. However, Medicare may pay for a Claimant’s covered medical expenses "conditional" on reimbursement. These conditional payments may occur in a denied workers’ compensation claim or a compensable claim where the carrier declines to pay for certain medical services (i.e., unauthorized treatment or palliative care).
CMS may initiate recovery of these conditional payments as soon as it learns that payment has been made or could be made under workers’ compensation, any liability or no-fault insurance, or any employer group health plan.[12] If it is necessary for CMS to take legal action to recover from the primary payer, CMS may recover twice the amount specified.[13] Furthermore, interest may accrue from the date when notice is received by CMS and is charged until reimbursement is made.[14]
CMS has emphasized the point of reimbursement for conditional payments. In the April 22, 2003 Memorandum, CMS provides: "...if Medicare made any conditional payments for work-related services furnished prior to settlement, then Medicare would require recovery of those payments."[ 15] In the July 23, 2001 Memorandum, CMS noted: "If Medicare has paid any amounts, they must be recovered."[16] Therefore, Medicare must be contacted to determine whether or not any conditional payments were made. Resolving this issue involves notification, investigation, and negotiation.
V. Consequences and Exposure
Failure to properly address the MSP may result in any of the following actions: 1) The beneficiary may receive a notice terminating future Medicare coverage; 2) Social Security may off set disability benefits on a dollar for dollar basis until the MSP claim, including interest, has been satisfied; 3) The Office of General Counsel may make demand or bring suit against the attorney for the Medicare beneficiary for recovery of the full amount of the MSP claim; or 4) The Office of General Counsel may make demand or bring suit for double the amount of the MSP claim against the carrier who distributed the settlement proceeds or damage award without first paying CMS. [17]
In any of the above scenarios it is foreseeable that a legal malpractice claim could be brought against the attorney( s) involved in the handling of the claim. There is a professional and ethical obligation on behalf of the attorney to ensure that work product does not negatively impact other potential benefits.
Attorneys must be very careful when considering Medicare’s interest. It is important to know: (1) The cases which require CMS approval, (2) The cases which require a set-aside agreement, (3) The procedure for negotiating conditional payments, (4) The cases which require a professionally administered trust, (5) The cases which require a structured settlement or annuity, and (6) The procedure for drafting submission documents and negotiating with CMS. Failure to properly evaluate and handle these complicated claims may result in significant exposure to everyone involved in the settlement and/or an extensive delay in the settlement of the claim.
Endnotes
[1] http://www.medicare.gov/Basics/Overview.asp
[2] http://www.medicare.gov/Basics/WhatIs.asp
[3] New Jersey claims are administered through the Atlanta Regional Office.
[4] The Need For Allocation And Medicare Set Asides - Medicare Offers Clarity, Susan G. Haines, Esq. (2003).
[5] Please note that the May 23, 2003 Memorandum, Page 1 states: "the current review thresholds are subject to adjustment. The CMS reserves the right to modify or eliminate its review criteria if it determines that Medicare’s interests are not being protected."
[6] July 23, 2001 Memorandum, Page 5.
[7] April 22, 2003 Memorandum, Pages 1 & 2.
[8] April 22, 2003 Memorandum, Page 1.
[9] July 23, 2001 Memorandum, Pages 9 & 10.
[10] April 22, 2003 Memorandum, Page 7.
[11] The Need For Allocation And Medicare Set Asides - Medicare Offers Clarity, Susan G. Haines, Esq. (2003).
[12] C.F.R. Title 42 Section 411.24 (b).
[13] C.F.R. Title 42 Section 411.24 (2).
[14] C.F.R. Title 42 Section 411.24 (m) (2)(ii).
[15] April 22, 2003 Memorandum, Page 8.
[16] July 23, 2001 Memorandum, Page 9.
[17] The Role of The New Coordination of Benefits Program In Tracking And Collecting Medicare Secondary Payer Claims, Susan G. Haines, Esq. (2001).
This update is written by Robert T. Lewis, Esq., a member of Capehart Scatchard’s Workers’ Compensation Group. Should you have any questions or would like to arrange a seminar on this topic, please contact Mr. Lewis at 856.914.2064, by fax 856.235.2786, or by email at rlewis@capehart.com.
This update is published for our clients, friends and professional associates. It is designed to provide accurate and authoritative information with respect to the subject covered. The information contained in this update is intended to be general in nature. In addition, state law may have an impact on specific situations. Before any action is taken based upon this information, it is essential that competent, individual, professional advice be obtained.
© 2003 Capehart & Scatchard, PA
